United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Period Ended September 30, 1995
Commission File Number: 0-15830
Raritan Bancorp Inc.
(exact name of registrant as specified in its charter)
Delaware 22-2792402
(State of Incorporation) (I.R.S. Employer Identification Number)
9 West Somerset Street, Raritan, New Jersey 08869
(address of principal executive offices) (zip code)
908-725-0080
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
X Yes No
____ ____
Applicable only to corporate issuers:
As of November 1, 1995, 1,530,189 common shares, $.01 par value per
share were outstanding.
<PAGE>
RARITAN BANCORP INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS 1
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 11
ITEM 2 CHANGES IN THE RIGHTS OF THE CORPORATION'S
SECURITY HOLDERS 11
ITEM 3 DEFAULTS BY THE CORPORATION ON ITS SENIOR
SECURITIES 11
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 11
ITEM 5 OTHER INFORMATION 11
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RARITAN BANCORP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
(Unaudited) (Audited)
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 9853 $ 7068
Federal funds sold 9300 9275
- -------------------------------------------------------------------------------
Total cash and cash equivalents 19153 16343
Securities available for sale
(Note 2) 36264 40456
Investment securities, net (fair
value: $76,000 at September 30,
1995 and $79,684 at December 31,
1994) (Note 2) 77291 86224
Loans held for sale 135 136
Loans (Note 3) 195202 183661
Less: Unearned income 488 474
Allowance for loan losses 2867 2729
(Note 3)
- -------------------------------------------------------------------------------
Net loans 191847 180458
- -------------------------------------------------------------------------------
Banking premises and equipment, net 3118 3320
Federal Home Loan Bank of
New York stock, at cost 2002 663
Accrued interest receivable 1987 1831
Other assets 3988 4115
- -------------------------------------------------------------------------------
Total assets $335785 $333546
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Liabilities and Shareholders'
Equity:
Due to depositors:
Interest-bearing $285407 $276448
Non-interest-bearing 19041 19718
- -------------------------------------------------------------------------------
Total deposits 304448 296166
Borrowings 206 10049
Accrued interest payable 55 74
Accrued expenses and other
liabilities 4887 3817
- -------------------------------------------------------------------------------
Total liabilities $309596 $310106
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- -------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized,
none issued
Common stock, $.01 par value,
3,500,000 shares authorized,
1,725,000 shares issued with
1,530,189 shares outstanding
at September 30, 1995 and
1,509,889 shares outstanding
at December 31, 1994 17 17
Additional paid-in capital 10598 10599
Retained earnings 17262 15919
Fair value adjustment of securities
available for sale, net of tax (31) (1236)
Less: Unallocated common stock
acquired by the ESOP (206) (257)
Cost of common stock in
treasury, 194,811 shares at
September 30, 1995 and
215,111 shares at December
31, 1994 (1451) (1602)
- -------------------------------------------------------------------------------
Total shareholders' equity 26189 23440
Commitments and contingencies
- -------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $335785 $333546
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on real estate
loans $3092 $2656 $8896 $7564
Interest and fees on other loans 923 813 2674 2273
Interest and dividends on
investment securities:
Taxable 1787 1852 5538 5134
Tax-exempt 13 14 40 44
Interest on deposits in other
banks 113 91 270 389
- -------------------------------------------------------------------------------------------------------------------
Total interest income 5928 5426 17418 15404
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposit accounts 3310 2609 9345 7232
Interest on borrowings 33 34 294 48
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 3343 2643 9639 7280
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Net interest income 2585 2783 7779 8124
Provision for loan losses 75 75 225 225
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 2510 2708 7554 7899
Other income:
Service charges and other income 144 137 443 413
Gains on net securities
transactions - - 56 148
Gains on sale of loans - - - -
- -------------------------------------------------------------------------------------------------------------------
Total other income 144 137 499 561
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Operating expenses:
Salaries and employee benefits 856 757 2543 2256
Occupancy expense 164 160 486 534
FDIC insurance premium 26 168 363 484
Net cost of operation of
other real estate 16 44 55 121
Other operating expenses 504 578 1524 1697
- ---------------------------------------------------------------------------------------------------------
Total operating expenses 1566 1707 4971 5092
- ---------------------------------------------------------------------------------------------------------
Income before income tax expense 1088 1138 3082 3368
Income tax expense 411 405 1145 1233
- ---------------------------------------------------------------------------------------------------------
Net income $ 676 $ 733 $ 1937 $ 2135
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Average number of shares outstanding:
Primary 1645943 1601282 1632373 1598969
- ---------------------------------------------------------------------------------------------------------
Fully diluted 1645943 1605955 1637496 1605919
- ---------------------------------------------------------------------------------------------------------
Net income per share:
Primary $0.41 $0.45 $1.19 $1.34
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Fully diluted $0.41 $0.45 $1.18 $1.33
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Raritan Bancorp Inc. and Subsidiary
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1937 $ 2135
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in accrued interest
receivable (156) (194)
Amortization on securities, net 184 46
Provision for loan losses 225 225
Gain on net securities
transactions (56) (148)
Decrease in accrued interest
payable (19) (3)
Increase in accrued expenses 289 351
Increase in prepaid expenses (17) (102)
Depreciation 269 285
Deferred income tax benefit 71 55
Increase (decrease) in income
taxes payable 161 (72)
Net increase, other 65 391
- -------------------------------------------------------------------------------
Total cash provided by operating
activities 2953 2969
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from maturities of
securities available for sale 5900 4499
Proceeds from maturities of
investment securities 8845 7783
Proceeds from sales of securities
available for sale 56 3046
Purchase of securities available
for sale - (12326)
Purchase of investment securities - (14276)
Purchase of Federal Home Loan
Bank of New York stock (1339) -
Net principal (disbursed) on loans
to customers (11676) (17611)
Proceeds from disposal of real
estate acquired by foreclosure 111 1113
Capital expenditures (67) (400)
- -------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 1830 (28172)
Cash flows from financing activities:
Net increase in deposits 8282 17395
Proceeds (repayment) of borrowings (9843) 4821
Issuance of common stock under
stock option plan 150 2
Cash dividends paid (594) (521)
Net increase (decrease) all other 32 (91)
- -------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (1973) 21606
- -------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 2810 (3597)
Cash and cash equivalents at
beginning of period 16343 14981
- -------------------------------------------------------------------------------
Cash and cash equivalents at
end of period $19153 $11384
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Supplemental schedule of cash
flow information:
Interest paid $ 4215 $ 3494
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Income taxes paid $ 913 $ 1250
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Mortgage loans originated to
refinance the disposal of real
estate acquired by foreclosure $ 353 $ 85
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: The consolidated financial statements include the accounts of the
Raritan Bancorp Inc. ("Corporation") and its wholly-owned subsidiary, The
Raritan Savings Bank ("Bank").
The consolidated balance sheet at September 30, 1995, the consolidated
statements of income for the three and nine month periods ended September 30,
1995 and 1994, and the consolidated statements of cash flows for the nine month
periods ended September 30, 1995 and 1994, have been prepared by the
Corporation without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial condition, results of operations, and changes in cash flows at
September 30, 1995 for all periods presented have been made.
The Bank has a policy which designates all currently originated thirty-year
fixed-rate mortgage loans as held for sale. These loans are carried at the
lower of aggregate cost or market, as determined by current investor yield
requirements as calculated on the aggregate loan basis.
Gains and losses resulting from the sale of these loans are determined on the
specific identification method and reflect the extent that the sales proceeds
exceed or are less than the Bank's investment in the loans (which includes
adjusting the unpaid principal balance of the loans for deferred loan
origination fees.)
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") 114, "Accounting by Creditors for Impairment of a
Loan" and SFAS 118, "Accounting by Creditors for Impairment of a Loan Income
Recognition and Disclosures." SFAS 114 and 118 address the accounting
treatment of certain impaired loans. A loan is considered impaired when, based
upon current information and events, it is probable that a creditor will be
unable to collect all amounts due. SFAS 114 and SFAS 118 do not apply to large
groups of smaller-balance homogenous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of cost or
fair value, leases or debt securities. Prior to January 1, 1995, the
Corporation's "impaired" loans were described as, and included in, "non-
performing" loans.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These consolidated financial statements are to be read in
conjunction with the December 31, 1994 audited financial statements and notes
thereto.
Certain amounts in the financial statements presented for prior periods have
been reclassified to conform with the 1995 presentation.
Interim results are not necessarily indicative of results for the full year.
<PAGE>
Note 2: Securities available for sale, at fair value, and investment
securities, net.
The amortized cost of securities and their estimated fair values at September
30, 1995, were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Securities available for sale, at fair value:
U.S. Treasury securities and obligations of
U.S. Government agencies $12547 $ 23 $ (36) $12534
Obligations of states and political subdivisions 761 33 - 794
Mortgage-backed securities issued by Federal agencies 23002 189 (255) 22936
- ----------------------------------------------------------------------------------------------------------------------
$36310 $245 $ (291) $36264
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Investment securities, net:
Mortgage-backed securities issued by Federal agencies $77291 $263 $(1554) $76000
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost of securities and their estimated market value at December
31, 1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale, at fair value:
U.S. Treasury securities and obligations of
U.S. Government agencies $15606 $ - $ (311) $15295
Obligations of states and political subdivisions 766 15 (11) 770
Mortgage-backed securities issued by Federal agencies 25934 10 (1553) 24391
- ----------------------------------------------------------------------------------------------------------------------
$42306 $25 $(1875) $40456
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Investment securities, net:
Mortgage-backed securities issued by Federal agencies $86224 $ 8 $(6548) $79684
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
During the nine month period ended September 30, 1995, an equity security
previously written-off was redeemed at a gain of $56,000. During the nine
month period ended September 30, 1994 the Corporation sold securities which
were classified as available-for-sale in the amount of $3,046,000 at a gross
gain of $148,000. The specific identification method was used to calculate
this gain.
<PAGE>
Note 3: Loans and Allowance for Loan Losses
Loans are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
(Unaudited) (Audited)
- -------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Real estate:
Conventional $144902 $139540
Construction 10936 6454
- -------------------------------------------------------------------------------
155838 145994
Consumer loans 28860 28660
Commercial loans 10504 9007
- -------------------------------------------------------------------------------
$195202 $183661
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
- ------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $2801 $3161 $2729 $3094
Provision charged to operations 75 75 225 225
Charge-offs (10) (75) (103) (164)
Recoveries 1 2 16 8
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period $2867 $3163 $2867 $3163
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Non-performing loans (over 90 days delinquent), in-substance foreclosed loans
(included in Loans) and real estate acquired by foreclosure (included in Other
Assets), totaled $2,371,000 and $2,105,000 at September 30, 1995 and December
31, 1994, respectively, as follows:
<TABLE>
<CAPTION>
September 30, 1995 December 30, 1994
- ---------------------------------------------------------------------------------------------------------------
Number Amount Number Amount
Description: of Loans (In thousands) of Loans (In Thousands)
- ---------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First mortgage loans 4 $ 503 2 $ 312
Home equity loans 2 105 - -
Second mortgage loans 2 128 - -
Consumer loans 1 6 1 2
Demand loans 1 7 1 7
In-substance foreclosed loans 3 601 8 701
- ---------------------------------------------------------------------------------------------------------------
Total non-performing loans 13 1350 12 1022
Real estate acquired by foreclosure (included 5 1021 3 1083
in Other Assets)
- ---------------------------------------------------------------------------------------------------------------
18 $2371 15 $2105
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
In addition to the above non-performing assets, there was one loan at September
30, 1995 totaling $15,000 and five loans at December 31, 1994 totaling $182,000
which were less than 90 days delinquent, but in non-accrual status.
<PAGE>
The loss of interest on loans charged-off, non-performing loans, non-accrual
loans, in-substance foreclosed loans and real estate acquired by foreclosure
totalled approximately $53,000 and $179,000 for the third quarter and first
nine months of 1995, compared to $61,000 and $242,000 for the corresponding
1994 periods.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
At September 30, 1995, the Corporation's total assets increased to $335.8
million from $333.5 million at December 31, 1994. Net loans and deposits
increased to $191.8 million and $304.4 million from $180.5 million and $296.2
million, respectively, at December 31, 1994. Deposits outflows, exclusive of
interest credited, exceeded inflows by $1.0 million during the first nine
months of 1995.
Non-performing loans (over 90 days delinquent) in-substance foreclosed loans
and real estate acquired by foreclosure totaled $2,371,000 or 1.23% of total
net loans plus real estate acquired by foreclosure at September 30, 1995,
compared to $2,105,000 or 1.16% of total net loans plus real estate acquired by
foreclosure at December 31, 1994.
During each of the three and nine month periods ended September 30, 1995 and
1994, the Corporation added $75,000 and $225,000, respectively, to the
allowance for loan losses. The identical provisions were in response to a
strengthening economy and real estate market in central New Jersey, together
with management's review of all non-performing loans and all other loans which
are considered loss, doubtful, substandard or special mention. The overall
loan portfolio is also reviewed when calculating the provision.
The following table provides a summary of the Corporation's non-performing
loans, in-substance foreclosed loans and real estate acquired by foreclosure at
September 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------------
Number Amount Number Amount
of Loans (In thousands) of Loans (In thousands)
- ---------------------------------------------------------------------------------------------------------------
Description: (Unaudited) (Audited)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First mortgage loans 4 $ 503 2 $ 312
Home equity loans 2 105 - -
Second mortgage loans 2 128 - -
Consumer loans 1 6 1 2
Demand loans 1 7 1 7
In-substance foreclosed loans 3 601 8 701
- ---------------------------------------------------------------------------------------------------------------
Total non-performing loans 13 1350 12 1022
Real estate acquired by foreclosure (included
in Other Assets) 5 1021 3 1083
- ---------------------------------------------------------------------------------------------------------------
18 $2371 15 $2105
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Of the ten non-performing loans at September 30, 1995, nine ($743,000) are
collateralized by real estate and one ($6,000) is unsecured. The three in-
substance foreclosed loans consist of one single-family residence ($24,000) and
two commercial properties ($577,000). Real estate acquired by foreclosure
consists of four single-family residences ($703,000) and six lots ($318,000).
Based on a review of each individual non-performing loan, and loans rated loss,
doubtful, substandard and special mention according to regulatory definition, a
specific allowance of $1,190,000 has been allocated to such loans, together
with a general allowance of $1,677,000 on the remaining loan portfolio taken as
a whole. During the quarter ended September 30, 1995 loans totaling $10,000
were charged off, while loans totaling $103,000 were charged off during the
first nine months of 1995.
<PAGE>
In addition, a general allowance for losses on real estate acquired by
foreclosure totaled $106,000 at September 30, 1995. This allowance resulted
from provisions for real estate losses charged to operations in prior periods.
Net charge-offs to this allowance totaled $2,000 during the three and nine
month periods ended September 30, 1995, compared to $191,000 and $335,000,
respectively, for the comparable 1994 periods.
Although the economy and real estate market in central New Jersey is
strengthening, management reviews on a regular basis all non-performing and in-
substance foreclosed loans, non-accrual loans and real estate acquired by
foreclosure and any supporting collateral on those loans. In the opinion of
management, the allowances for potential losses is adequate in relation to non-
performing and in-substance foreclosed loans, non-accrual loans and real estate
acquired by foreclosure and the total loan portfolio. However, management
cannot give assurances as to whether future adjustments may be necessary.
Shareholders' equity totaled $26.2 million, or $17.11 per share at September
30, 1995, compared to $23.4 million, or $15.52 per share at December 31, 1994.
The increase in shareholders' equity is the result of net income totaling
$1,937,000 for the nine months ended September 30, 1995, the issuance of 20,300
shares of common stock for $150,000 via the exercise of stock options, a
decrease of $51,000 in the ESOP debt, an increase in the fair value adjustment
of securities available-for-sale of $1,205,000, offset by paying dividends of
$594,000 to shareholders.
On August 8, 1995, the Federal Deposit Insurance Corporation ("FDIC") amended
its regulations on insurance assessments to establish a new assessment rate
schedule of 4 to 31 basis points in replacement of the existing schedule of 23
to 31 basis points for institutions whose deposits are subject to assessment by
the Bank Insurance Fund ("BIF"). The FDIC has maintained the current
assessment rate schedule of 23 to 31 basis points for institutions whose
deposits are subject to assessment by the Savings Association Insurance Fund
("SAIF"). The new BIF schedule became effective on June 1, 1995. Assessments
which had been collected at the previous assessment schedule, in excess of the
amount due under the new schedule were refunded with interest, and reduced
operating expenses by $141,000 for the quarter ended September 30, 1995.
Various legislative proposals regarding the future of the BIF and SAIF have
been reported recently. Several of these proposals included a one-time special
assessment for SAIF deposits and a subsequent comparable and reduced level of
annual premiums for SAIF and BIF deposits. The Corporation does not know when
or if any such proposal, or any other related proposal, may be adopted.
Results of Operations
Raritan Bancorp Inc. and its subsidiary recorded net income of $677,000 for the
third quarter of 1995 compared to $733,000 for the same period in 1994. For
the first nine months of 1994, net income was $1,937,000 compared to $2,135,000
for the corresponding period in 1994.
Net interest income decreased for the third quarter of 1995 to $2,585,000, from
$2,783,000, or 7.1% for the comparable quarter in 1994, as a result of a
decrease in the net interest rate spread to 2.78% from 3.18% a year earlier,
offset by an increase in average net earnings assets to $32.3 million from
$28.6 million a year earlier. Net interest income decreased for the first nine
months of 1995 to $7,779,000, from $8,124,000, or 4.2% for the corresponding
period in 1994, as a result of a decrease in the net interest rate spread to
2.84% from 3.18% a year earlier, offset by an increase in average net earning
assets to $30.8 million from $19.6 million a year earlier.
The increase in consumer deposit rates over the last year together with the
cost of borrowings under repurchase agreements, both of which rose faster than
the yields on earning assets, contributed to the decrease in the interest rate
spread.
Net interest income for the third quarter and first nine months of 1995 was
also affected by the loss of interest on non-performing loans, in-substance
foreclosed loans, non-accrual loans and real estate acquired by foreclosure.
When a loan becomes more than ninety days delinquent, the Corporation ceases to
accrue income and deducts interest income on that loan which had previously
been accrued into interest income for such period of time. The loss of
interest on loans charged off, non-performing loans, non-accrual loans, in-
substance foreclosed loans, and real estate acquired by foreclosure for the
third quarter and first nine months of 1995 was approximately $53,000 and
$179,000, respectively, compared to $61,000 and $242,000, respectively, for the
corresponding 1994 periods.
The provision for loan losses for the third quarter and first nine months of
both 1995 and 1994 was $75,000 and $225,000, respectively. As described in the
discussion of the Corporation's financial condition, the reduced provision to
the allowance for loan losses was in response to a strengthening real estate
market and economy in central New Jersey, together with a review of all non-
performing assets on a case-by-case basis.
<PAGE>
Management calculated the provision based on a review of the required allowance
at September 30, 1995. All non-performing loans and loans rated loss,
doubtful, substandard and special mention according to regulatory definition
were reviewed and a specific allowance of $1,190,000 was determined to be
adequate by comparing the existing loan balances with the value of supporting
collateral. A review of the remaining loan portfolio was made and a general
allowance of approximately $1,677,000 was deemed reasonable and was established
by assigning risk factors to the various loan categories based on the
collateral securing the appropriate loans and historical trends. The third
quarter, 1995 provision of $75,000 was then charged to operations to establish
the $2,867,000 allowance for loan losses at September 30, 1995.
Other expenses for the third quarter and first nine months of 1995 were
$1,566,000 and $4,971,000, respectively, compared to $1,707,000 and $5,092,000,
respectively, for the corresponding periods in 1994. Salaries and employee
benefits increased $99,000, or 13.1%, to $856,000 for the third quarter of 1995
from $757,000 for the comparable period in 1994, and increased $287,000, or
12.7%, to $2,543,000 from $2,256,000 for the first nine months of 1994.
Additions to staff and normal salary increases contributed to the increases.
Occupancy expense remained constant for the third quarter, 1995 compared to the
corresponding 1994 period, but decreased $48,000, or 9.0% for the first nine
months of 1994 compared to the corresponding period in 1994. The decrease
results from reduced snow removal expenses in 1995 and the absence of the
accelerated amortization of leasehold improvements in 1994 at the former
Whitehouse Station, New Jersey office whose lease expired in May, 1994. The
FDIC insurance premium decreased $142,000, or 84.5%, to $26,000 for the third
quarter of 1995 from $168,000 for the comparable period in 1994, and also
decreased $121,000, or 25.0%, to $363,000 for the first nine months of 1995
from $484,000 for the first nine months of 1994. Both decreases reflect the
aforementioned BIF assessment refund of $141,000. Net cost of operation of
other real estate decreased $28,000 and $66,000 for the third quarter and first
nine months of 1995, respectively, from the corresponding periods in 1994, as
most provisions and expenditures had already been made in prior periods to
bring the properties to saleable condition. Other operating expenses decreased
$74,000, or 12.8%, to $504,000, and $173,000, or 10.2%, to $1,524,000 for the
third quarter and first nine months of 1995, respectively, when compared to the
corresponding 1994 periods. Reductions in outside service bureau expenses,
legal fees, supervisory examination fees, and marketing expenses contributed to
the decreases.
Income taxes were $411,000 and $1,145,000 for the third quarter and first nine
months of 1995, respectively, compared to $405,000 and $1,233,000 for the
corresponding 1994 periods. The higher effective income tax rates for 1995
compared to 1994 results from a lower bad debt deduction in 1995, which is
based on the percentage of taxable income method, compared to a 1994 bad debt
deduction based on actual charge-offs. The bad debt deduction for the first
nine months of 1995 was $271,000 compared to $503,000 for the first nine months
of 1994.
The Corporation's annualized return on average total assets and average
shareholders' equity was 0.82% and 10.44%, respectively, for the third quarter
of 1995, compared to 0.88% and 12.59%, respectively, for the comparable periods
in 1994. For the first nine months of 1995, the annualized return on average
total assets and average shareholders' equity was .78% and 10.29%,
respectively, compared to 0.88% and 12.35%, respectively, for the corresponding
periods in 1994.
Liquidity and Capital Resources
The Corporation's liquidity is a measure of its ability to fund loans and
withdrawal of deposits in a cost-effective manner. The Corporation's principal
sources of funds are deposits, scheduled amortization and repayment of loan
principal, maturities of investment securities and funds provided by
operations. At September 30, 1995, the Corporation's liquid assets (cash and
cash equivalent and investment securities maturing in one year or less) totaled
$26.2 million which represents 7.8% of total assets.
<PAGE>
The Corporation's main liquidity demands come from loan disbursements which
totaled approximately $43.6 million for the first nine months of 1995. At
September 30, 1995 outstanding commitments to extend credit totaled $20.7
million. Management believes that the Corporation has adequate sources of
liquidity to funds these commitments.
The Bank has a borrowing arrangement with the Federal Home Loan Bank of New
York which can provide additional funds, if needed. At September 30, 1995,
this borrowing capacity totaled $16.6 million.
Both the Corporation and the Bank are subject to regulatory capital
requirements mandated by the Federal Reserve Board (FRB) and the Federal
Deposit Insurance Corporation (FDIC), respectively. Both are required to
maintain minimum capital requirements, defined by both the FRB and FDIC as
risk-based ratio capital (Tier 1 and Total) and leverage capital ratio.
The following chart presents the minimum capital requirement ratios and the
actual ratios for both the Corporation and the Bank.
<TABLE>
<CAPTION>
September 30, 1995
- ----------------------------------------------------------------------------------------------------
Required Actual Excess
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THE CORPORATION:
Risk-based capital:
Tier 1 4.00% 14.959% 10.959%
Total 8.00 16.215 8.215
Leverage capital ratio 4.00 7.55 3.55
THE BANK:
Risk-based capital:
Tier 1 4.00% 14.941% 10.941%
Total 8.00 16.197 8.197
Leverage capital ratio 4.00 7.53 3.53
</TABLE>
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RARITAN BANCORP INC.
(Registrant)
11/1/95 Arlyn D. Rus
Date (Signature)
Chairman, President and CEO
Director
11/1/95 Thomas F. Tansey
(Signature)
Executive Vice President, Chief
Operating Officer and Treasurer
Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 9853
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36264
<INVESTMENTS-CARRYING> 77291
<INVESTMENTS-MARKET> 76000
<LOANS> 194714
<ALLOWANCE> 2867
<TOTAL-ASSETS> 335785
<DEPOSITS> 304448
<SHORT-TERM> 51
<LIABILITIES-OTHER> 4942
<LONG-TERM> 155
<COMMON> 17
0
0
<OTHER-SE> 26172
<TOTAL-LIABILITIES-AND-EQUITY> 335785
<INTEREST-LOAN> 11570
<INTEREST-INVEST> 5578
<INTEREST-OTHER> 270
<INTEREST-TOTAL> 17418
<INTEREST-DEPOSIT> 9345
<INTEREST-EXPENSE> 9639
<INTEREST-INCOME-NET> 7779
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 56
<EXPENSE-OTHER> 4971
<INCOME-PRETAX> 3082
<INCOME-PRE-EXTRAORDINARY> 1937
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1937
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 3.28
<LOANS-NON> 1350
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2729
<CHARGE-OFFS> 103
<RECOVERIES> 16
<ALLOWANCE-CLOSE> 2867
<ALLOWANCE-DOMESTIC> 2867
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
